I'm Swiss-born, served as a Marine jet attack aviator in the Korean and pre-Vietnam era. I received an MBA from UC Berkeley in 1962, with highest honors. I've held top management positions at GM, BMW, Ford, Chrysler and retired from GM as Vice Chairman in 2010 at age 78. My two successful books are "Guts: The Seven Laws of Business That Made Chrysler The World's Hottest Car Company" (Jonn Wiley+Son, 1998) and, more recently, "Car Guys vs. Bean Counters: The Battle For The Soul Of American Business" (Portfolio Press, 2010) Most current book "Icons and Idiots" (Portfolio Press, 2012). I'm a contributor for Road & Track Magazine along with CNBC, and appear with some frequency on "Larry Kudlow." I serve on numerous startup boards, am a Leigh Bureau professional lecturer and provide consulting services to a number of clients. I tend to have strong opinions which I share with enthusiasm ... some would say "to a fault." My personal motto is "Often wrong, but seldom in doubt." For more information, visit my website, boblutzsez.com.

The Real Story On GM's Volt Costs

I was surprised to read Ben Klayman’s piece on alleged astronomical per-unit losses on the Chevrolet “Volt.” Ben is usually a solid professional who checks his facts.

The statement that GM “loses” over $40K per Volt is preposterous. What the “analyst” in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” 9 million dollars, or several hundred thousand per renter.

Listen, Ben and Micheline: that’s not how car business cost accounting works.

Let me provide a look at how a car company tracks profitability of a product program: measured are material cost and labor, and these are deducted from the selling price. The positive difference is called “gross margin.” Then, one allocates per-unit “fixed cost” (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment, based on the TOTAL NUMBER TO BE PRODUCED OVER THE LIFETIME of the product. If the margin, after all deductions, is still positive, then we call it a “fully accounted profit,” and the car is a winner.

The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy “Cruze” which sells for around $22,000 retail! (And the Volt has no costly conventional transmission.) Thus, the “Volt”, by my estimate, is either close to “variable break-even” or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment.

Maybe the Volt, a first-generation technology masterpiece and the most-awarded car in automotive history, will never make a really decent profit.

But succeeding generations of the same technology will. Meanwhile, the happy Volt buyers (most satisfied owners of any nameplate in the market) are getting more that they paid for. (Is that so bad?)

We won’t even factor in the profound halo effect the introduction of the Volt has had on GM’s reputation as a leader in environmental automotive technology; it’s priceless, and could never have been achieved without it.

So, once again, the knee-jerk Volt bashers, devoid of any real knowledge, have had their usual joyous verbal catharsis, but the car doesn’t care: The volumes are building globally and it’s doing exactly what it was designed to do.

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Thank you for a very interesting piece. I think that you do not appreciate the political overtones involved in the Chevy Volt. Many conservatives and other opponents of Mr. Obama like to use the Volt a cudgel to pummel him with. In late 2008 General Motors faced the danger of bankruptcy and President Bush rushed TARP money to GM and Chrysler. Later President Obama of course completed the process, taking over GM in many ways. His critics would like to use the Volt as an example of what government meddling in the free market can produce, a lemon they say. That the Volt was in development and pre-production long before Mr. Obama came into office deters these critics not at all. So thank you for a bit of fact in a sea of opinion.

Comments like yours are a disaster. Why are so many people insistent on promoting ignorance, based on hate, based upon objecting to anything new and superior to what they currently understand. Good grief, its AMERICAN ingenuity for crying out loud. How can you people call yourself “Patriotic” and hate something that is American. The “GM BAILOUT” that was initiated by Bush, and finished by Obama (who you people seem to love to hate for no factual reason) not only saved ALL OF the General Motors product line, it also saved all the companies that are almost exclusively in business because GM buys their services and products. It was not a “Chevy Volt Project Bailout” like people throw around. It saved a few hundred thousand jobs. But you get upset because you think that your tax dollars went to a vehicle that you haven’t even looked at, or at least DRIVEN, or tried to understand the impact that it can have on the world going forward. Imagine if ALL cars, not just GM vehicles, but if all cars operated with the Voltec concept. The “VOLT is a disaster” as you call it, has eliminated a few supertankers from needing to be brought in….from countries that don’t like us. But you’re ok with that apparently.

The thin is, it cant be called a disaster right this minute. Which really a annoy right wingers because they need it to be a disaster before the election. But if it not at least they can try an spin the story so that it is. Who need the truth, certainly not the electorate, at least according to the republicans.

Apparently you don’t know who Bob Lutz is and you seem to be unaware of what the Volt is and what it does.

Do you have any idea of why the Volt won the North American car of the year award AND the European car of the year award? Or how about Motor Trend’s car of the year? Do you know why Volt owners give it the highest satisfaction score ever in the history of Consumer Reports? It’s because Lutz, Lauckner, Farah, Posawatz, et al did a hell of a job on the car.

For me personally I’ve had my Volt since March 2011 and I have put more than 20,000 miles on it and have used barely over 60 gallons of gas. If you care to do the the math on that it comes up to well over 300 MPG. In terms of dollars and cents the Volt saves me about $2,000 a year over my last car that got about 30 MPG.

On top of that it has a 5 star safety rating and in case you have never driven an electric car, they are just fun to drive. Electric motors have a lot of low end torque and so they are very quick off the line and the low center of gravity of the vehicle makes it very responsive.

As you can tell I love this car and so do almost every single Volt owner out there. What I, as a lifelong Republican who also calls myself conservative, can’t stand is the willful ignorance of other Republicans and conservatives when it comes to the Volt. This is a car that should be hailed by conservatives but somehow this has become an Obamacar. It’s ludicrous and shows very poorly on “our” side of the political divide.

That’s an interesting comment and I’m not sure why people are “calling out” the comment. Anyway, just FYI, the Prius was introduced in 1997 in Japan and 2000 here in the US. During this time frame GM was working on the EV1. Obviously the battery technology of the late 1990′s was not where it needed to be in order for the EV1 to be cost competitive.

Fortunately, some of the technology and some of the knowledge gained from the EV1 was used in the Volt. With the rise of Tesla in the mid-2000′s, Lutz thought that perhaps GM should use the new battery chemistry to make a better electric car. After all, if Tesla could do it and they were a start up, why couldn’t GM do it with their world class engineers? Lutz brought the idea to Lauckner around 2006 and in 2007 the Volt concept car was introduced at an American car show.

Less than four years later the Volt went on sale and it has allowed some drivers to get over 5,000 MPG and allows them not to have any “range anxiety” commonly associated with pure electric cars. Of course, the more typical user gets in the ball park of 170 MPG.

Personally, I’m around 330 MPG but I haven’t checked my mileage in the last several weeks and so I could be off just a little.

@ChrisRogers. I agree that $40k and a 10 year recoup of costs is quite a a lot. I lease a Volt and offer a different perspective: http://michaelfinger.tumblr.com/post/29244580145/my-volt-first-month-by-the-numbers

Agreed. I am a big time fiscal conservative, but the ignorance displayed in this thread, and the apparent unwillingness to accept a fairly straightforward explanation based on simple math because of political ideology is astounding, and why I am not affiliated with any party. I have run the numbers on this car, for my situation, and I just got back from a test drive. We are leaning toward the volt. I am a car guy and I like sports cars. I have one and enjoy the sunday morning high speed drive down a two lane blacktop. But that car gets 13 MPG (when I drive it, 17 when my wife drives it) and is not practical on a daily basis. Anyway, we work out of our house, and our average trip is just about 30 miles. We pay 10.5 cents/kilowatt hour for electricity. I am pretty confident I can get the base model (which is pretty loaded) on a 36 month lease with about $2,500 down @ $275 a month. The car is quiet, handles relatively well, accelerates fairly quickly, and has all the options I want in a car. Most of our trips are business related, so we’ll be writing off most of payment. Our fuel costs will drop over 80% because based on my calculations and comparisons with hundreds of real world results from current owners we will be on electric (nuclear sourced, BTW) well over 90% of the time – the 2013 model has a better EV range than the 2012 model.

Another thing I don’t quite understand is the concept of payback. I mean, I understand what it means, but really, I’m not sure why so much is made of that in these cases and there are a lot of what-ifs that seem more likely now than they did a few months ago. What about $5/gallon gas? (I mean nation wide – it’s already $5 in California) What about shortages if the mid-east goes to hell? Seriously – what is the “payback” on a $90,000 Mercedes SL or a Porsche Cayenne? I don’t think people that buy Porsches are stupid and I don’t think people that buy Volts are stupid.

And one thing I wish Republicans would quit doing is blaming the car bailout solely on Obama. I think that he is a poor excuse for a president, but Bush initiated them bailouts, and I didn’t agree with it then either. You know, this isn’t high school and it’s not all black and white. You can call out your own guy when he screws up – he did and you should. And really, some of you might want to take a remedial economics class before commenting. I am embarrassed for you.

Well, it saved you 2000/yr over your last car. Assuming that your last car had used up its entire life, which I doubt, to get that putative 2000/yr you spent 50,000. That means it will take you 25 years to get to break even. Battery packs at 15k each 40,000 miles. Well I do not see it working out. Keeping a 96 Honda civic which gets 40, ney 50 miles per gallon without all the Li toxic metal waste I think it the wiser, and more environmentally friendly choice.

You can get a fully loaded Volt for $42K and with the $7,500 tax credit and state clean air rebates – you can get a fully loaded Volt for around $32K.

You can do the same with the base Volt – which has plenty of standard options (Bluetooth, good sound system, sirius XM AND 3 years of OnStar service for free – with turn by turn Nav direction). Your net cost would be under $30K.

So when are you gonna buy one? OK, so your answer was rhetorical in nature. Go at least test drive on.

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I love my Volt. When I was shopping for a car I wanted a little performance, quality interior and huge savings at the pump. My previous car was a Acura MDX it got 16 MPG. I cringed every time I went to the pump. I decided I wanted something different. Something innovative, fresh and new. I didn’t want a Prius. I wanted something fun to drive. The Volt is fun and I recently got 720 miles between EV and the gas generator. Every time I drive it people stop me and ask about it. They marval over its technology and the fact I spent $35 a month on gas. The nay-sayers that bash this car is pur ignorance. You pay for what you get! And if you like driving around town in a tin can that looks like a triangle…I’m speaking of the Prius. God Speed!

I’m also a “car guy” like Bob Lutz says. This is the same logic as President Obama uses to justify the money wasted on ideas that don’t make economic sense. No one talks about the coal that has to be fired to generate the electricity to run the Volt or manufacture the batteries. Everyone knows that the Volt is a huge embarrassing failure.

The lease deals that just ended had a residual of about $30k, and I predict that that will be roughly what the cars will fetch at resale at that time, maintaining 80+% of their post-subsidy value. In fact, I believe leasors will be a bit discouraged when it comes time to turn them in, and will either buy at the end of their term or buy the updated version of Volt, unless their circumstances change (longer commute, need to seat 5, loss of income, etc).

Or the coal it takes to refine gas (turns out it takes more electricity to refine a gallon of gas than to charge the Volt.)

Guys like Lutz and I don’t buy the car because it’s green. We buy it because we don’t like sending our money to countries that hate us for fuel. I personally like the technology. And if there is a war with Iran and another oil embargo like the seventies, I won’t be in the long gas lines.

I don’t get what’s embarrassing about it? It’s had numerous top technological awards. Was top rated mid-size high end car last year. This year it is 9 out of 19. (My numbers may be slightly off but close enough so you get the idea.)

You’re either willfully lying or just plain uninformed. This has been a talking point about the car since it came out, starting with the right trying to use it as a line of attack. People have done the cost and environmental comparison, and the Volt still is leaps and bounds ahead of the conventional cars when it comes to the cost, both environmentally and financially, of charging it and building it.

On top of that, Lithium-Ion batteries can be almost completely recycled and reused further negating our impact on the environment and mitigated green house gas emissions.

The Volt is outselling the Corvette, so the Vette is an embarrassing failure?

No one talks about the coal because it is a non-issue compared to gasoline. The coal used for electricity is a lot less than the gasoline to burn in an ICE. And less pollution. I pay 3.8 cents a KWh to charge my Volt – for 50 cents of electricity – I get around 40 miles of city driving. An average Gasoline car gets 22 MPG city – for $4.00 a gallon of a higher burning pollutant.

Also, any pollution for coal is not in the center of cities, the gasoline burned is polluting the cities on every street throughout the city.

But facts have never stood in the way of ignorant people. Thanks for playing the game of life, you will at least get a participant certificate in the mail.

Just keep in mind, Bill, that gasoline incorporates road taxes — a lot of them; while electricity doesn’t (yet.) So (a), you’re driving cheaper right now courtesy of the rest of us paying those road taxes for you — you still get to use the same roads — and (b) you can look forward to higher electricity prices to charge that car down the road — just as soon as they figure out how to do it.

I’m not anti electric, or even annoyed that you’re getting out of some taxes that I have to pay; I’m just pointing out that a $35k car that isn’t really playing on the same playing field as a gasoline fueled car isn’t as easy to analyze fairly as some might think.

Me, I’m hoping for some advances in ultracapacitors to bring them in line with the total energy storage of batteries (not very close, yet.) Now, *that* would be a game-changer. No replacing batteries, ultra fast charges, more energy available on demand for sprints, passing, etc., and great tolerance for temperature extremes.

It amazes me that people still buy GM cars. Doesn’t anyone remember the Cadillac Cimarron? Or that Cadillac that with an engine that was supposed to switch between 8, 6, and 4 cylinders depend on the amount of power needed (never, ever came close to working correctly).

Personally, I have always thought that the best car made in a socialist country was the Russian Lada. GM is a distant second.

Really? You’re going to spec out the Volt against two cherry-picked vehicles that GM produced roughly 3 DECADES AGO?

I’ll be the first to admit that I was not a fan of American made vehicles until recently. I wanted to be patriotic and support an American car company, but hadn’t been impressed until someone I work with brought home one of the first new Camaros available a couple years ago. Being a MASTER Automotive Technician certified individual, and MASTER Engine Machinist, I can spot varying levels of build quality. The Camaro was impressive. I came close to purchasing a Nissan Leaf, and fortunately had checked out the Volt last, which sealed the deal. There is no question that the product that GM is putting out today is definitely the American Car Company that Americans can be proud of.

And then you’re going to insinuate that the sitting President is entirely responsible for making GM some sort of Communist/Solcialist Government RUN entity? Comments like this are so sad, its not even funny anymore.

Come off it Bob! “Meanwhile, the happy Volt buyers (most satisfied owners of any nameplate in the market) are getting more that they paid for. (Is that so bad?)” Yes, it’s really, really bad for those of us who recognize that the Volt (or it’s putative successors) will never, ever, achieve the volume you anticipate and deeply resent the subsidy that we are providing for those, very few, owners who have been bribed to drive one.

Can I hold that crystal ball that you’ve got there? Or are you simply ignoring the legitimate math that this article explains so that you can justify hating on something that you heard is associated with Obama, who simply completed a transaction that a Republican President initiated?

Conservatives knock the Volt because it’s a pet project of the administration and big labor. Liberals support the car because they support Obama. The only critics that are important are the car-savvy consumers, who, even though the Volt is heavily supported by taxpayer funded incentives, are avoiding this car big time. If it was such a great car it would be selling without incentives. As it is, the plant is being shut down (at least for now) due to lack of consumer demand.

If the Volt was selling well, they wouldn’t be shutting down the plant to re-tool for any other car. If they needed to re-tool for another vehicle they would close the plant of a car not selling very well. In spite of your hipster dufus catchphrases, you’re way off base. But thanks for playing.